Keeping Family Businesses Harmonious

July 13, 2017

Running a family business was probably easier back in 1786, when John Molson founded the Canadian brewery.

In those days, eldest sons usually took over the reins, a company’s primary role was to provide for the family and disagreements were commonly resolved with the “my-way-or-the-highway” tactic.

Since that time, family-run businesses have been an important segment of the economy — and internal conflict is common at many of them.

Take Molson Inc., for example. Discord reportedly set in back during the 1970s when one side of the family sold the Montreal Canadiens hockey team to the Bronfmans, a rival Canadian dynasty. The company subsequently bought back the team and sold it again. (Currently, a group headed by Molson family members once again owns the Montreal Canadiens.)

The family appeared to make peace in the 1990s when Ian Molson joined the company’s board as deputy chairman. But in early 2004, he quit in a dispute with his cousin, Eric Molson, who was the chairman of the board. Ian Molson opposed the plan.

The saga illustrates that no matter how successful a family company is or how many generations it has survived, unresolved conflicts can take attention away from the smooth running of the business. Common sources of conflict include:

1. Resources – Money, shares and management positions are limited and relatives may squabble over jobs, equity holdings and share of profits.

2. Strategy – The direction of the business can spark difficult feuds, with some arguing that change is necessary to keep the company strong while others insist there is no reason to change or innovate, no money for it and no time to spend on it.

3. Values – Individual interests and values change over time and can weaken family bonds. On top of that, different generations can have new ideas of what they want to do with their wealth.

4. Rivalry – Although it is inevitable in many families, rivalry is dangerous when it spills over into business. If conflicts between siblings or other relatives aren’t resolved, the company can head toward disaster.

A Family Plan

Outline the family’s core principles and the company’s strategic plan, including:

    • Prerequisites for joining the company (age, education, outside experience).
    • Compensation policy.
    • Succession plans.
    • Divorce contingencies.
    • Profits for non-active family members.
    • Decision-making powers.
    • Procedures for leaving the company.
    • Rules for buying out a family member.

The challenge isn’t to avoid all conflicts. Instead, it’s to get everyone to agree that feuds don’t belong in business. Here are some considerations that can help keep your business successful despite any discord:

Write a family credo. While not legally binding, this is similar to a shareholders’ agreement. The creed or charter outlines how family members can join and leave the company, when meetings are held and who makes decisions.

Set up shareholder agreements. These are legally binding contracts specifying the ownership structure and the means for transferring equity. They are particularly critical in the event of a death or divorce.

Structure stock holdings. Everyone in the family, including distant cousins, may want a stake in the business, even if they aren’t actively involved in operating it. Issue voting and non-voting stock so some family members get a share but a core group retains decision-making powers.

Appoint independent directors. There should be enough outside directors to offset overpowering family influences. The idea is that the family monitors management while someone monitors the family.

Hold family meetings. Make sure the meetings are formal and held at regular intervals to discuss business issues and settle arguments. Include family shareholders, relatives who play a large role in the business and others who influence the decision-makers.

Evaluate performance. Develop a structured evaluation process that focuses on improvement rather than weaknesses. While appraisals can spark conflict, they help ensure that jobs and responsibilities are assigned based on skill — not on family relationships.

Get professional help. Talk to your accounting firm for advice on resolving problems, setting up succession plans and other matters involved in your family business.

Bottom Line: Some conflict is essential for growth. Too little can be as damaging as too much. Resolve it by making wise compromises and get on with the business of success.

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